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Energy firms try to grasp new rules

Energy firms try to grasp new rules

Years of effort to tighten regulation of Colorado’s oil and gas industry come to fruition when new rules take effect Wednesday.

And despite the date — April 1 — this is no April Fool’s joke, although many in the industry might wish it were so.

“It’s sort of ironic,” Wayne Bankert of Laramie Energy II said of the timing of the implementation of new oil and gas rules.

Bankert is senior regulatory and environmental coordinator for Laramie, which operates south of Rifle. He formerly worked on the other side of the regulatory table as a petroleum engineer for the U.S. Bureau of Land Management.

Like other energy companies — and the Colorado Oil and Gas Conservation Commission, which is implementing the new rules — Laramie is working hard to get ready for what will be a significant transition.

“I’m just still trying to muddle through all those rules and trying to figure them out myself,” Bankert said. “It’s going to take a while.”

Harris Sherman, executive director of the state Department of Natural Resources and chairman of the oil and gas commission, said the transition will be made a lot easier because drilling permits approved before Wednesday are subject to the existing rules rather than the new ones. Those permits are good for one year, and Sherman said thousands of wells have yet to be drilled under existing permits.

As a result, most of the oil and gas development this year in western Colorado’s Piceance Basin, the center of the state’s drilling activity, will occur under the old rules, he said.

“There’s going to be a transition period which will, we believe, be helpful to the companies,” Sherman said.

Bankert wonders how much having grandfathered permits will help at a time when the industry has sharply cut back drilling activity and may not use a lot of the permits.

Companies plan a year or two ahead, he said, and delays associated with getting permits under the new rules in coming weeks may reveal themselves later as existing permits expire, when there could be a dearth of new ones to replace them.

Years in the works

The new rules are the result of years of efforts by advocates of regulatory reform of the industry. As a result of their lobbying, in 2007 the Legislature passed bills requiring a balance to be struck between oil and gas development and protection of public health, the environment and wildlife. The oil and gas commission then embarked on a rules rewrite process culminating in its approval in December of 100 new rules.

Some of the requirements include maintaining chemical inventories for inspection by the state, new odor controls, lining of most pits to reduce leaking, processes for consulting state health and wildlife officials, protections of municipal watersheds, and new reclamation standards.

The industry has called the rules costly and onerous. Companies say concern about the rules has exacerbated a drilling slowdown that arises from falling natural gas prices and
other factors.

Republican lawmakers reiterated these concerns during legislative review of the rules.

But the review bill cleared the Legislature last week and awaits the signature of the rules’ staunch proponent, Democratic Gov. Bill Ritter, before Wednesday.

As Republicans criticize Ritter over the issue, advocates of better protections for residents and wildlife living in drilling country are thanking him and Democratic lawmakers who ushered through the rules.

“This is an important achievement,” said Gretchen Nicholoff, president of the Western Colorado Congress, in a news release after the Senate approved the rules Wednesday.

“For years we’ve been pursuing common-sense protections for public health and the environment while endorsing responsible energy development. We’re thankful for Governor Ritter, Representative Curry, Senator Schwartz and other civic leaders who have helped strike this critical balance,” Nicholoff said.

Kathleen Curry, D-Gunnison, and Gail Schwartz, D-Snowmass Village, took strong stands in support of the rules during legislative debate in recent weeks.

State Sen. Al White, R-Hayden, whose district includes much of the Piceance Basin, voted against the rules after expressing concern that they could add $50,000 to the cost of a drilling permit application and $500,000 to the cost of drilling a well.

Doug Hock of EnCana Oil & Gas (USA) said his company expects the rules to boost the cost of drilling a well by $20,000 to $100,000.

He cites as one example of what EnCana considers to be costly overregulation a requirement that revegetation of a well site be monitored for the life of a well, which can be several decades.

EnCana thinks a current state Department of Public Health and Environment rule on the matter is sufficient.

It states that monitoring is no longer necessary once revegetation coverage reaches 70 percent.

Bankert said requirements for nets to keep birds out of drilling pits could add $10,000 to $100,000 to the cost of a pit. That’s a significant expense for temporary pits, he said.

Could have been stricter

Industry concerns draw little sympathy from people such as Dave Trimm, president of Grand Valley Anglers. He takes offense at suggestions that the rules’ supporters have helped drive away the industry.

In areas such as protection for fish habitat, the final rules are less strict than what groups such as his sought, he said. He said drilling has ruined trout streams on parts of the Roan Plateau.

“I’m happy to see what we got (in the way of new rules), but we didn’t get anything near what I would have liked to have seen,” Trimm said.

With at least the formal debate over the rules being over, the attention turns now to their implementation.

Bankert said there will be a learning curve for the industry and oil and gas commission staff.

The agency has held training sessions for the industry in different parts of the state but drew criticism when it said it wouldn’t have time to take questions at the sessions from company officials.

Bankert said the agency relented and accepted some questions, but it didn’t have answers to a lot of them, which worried him.

“They just glossed over a lot of this material that they needed to delve deeper into and the industry wanted to delve deeper into,” he said.

Sherman said a training manual for the industry is being finalized, and the oil and gas commission has been adding new staff to handle the workload created by the new rules.

“We’re hoping to make this transition as smooth as possible,” he said.

Adjusting to the rules may be easier for larger companies such as EnCana.

Even if the company doesn’t like all the rules, Hock said EnCana has a full understanding of them and didn’t participate in the agency’s training sessions.

Instead, EnCana has been holding weekly training for its own employees, and it feels good about its level of preparation, Hock said.

“I think it’s just a matter of planning and organizing our operations around the rules,” he said.